1 of 27 pages
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 30, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
--------------------------------------
(State or other jurisdiction) (I.R.S. Employer Identified No.)
191 Spring Street, Lexington, Massachusetts 02421
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)824-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
Common stock, $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes(X) No ( )
As of July 10, 2003, 39,462,133 shares of the Registrant's common stock, $.25
par value, and the accompanying Preferred Stock Purchase Rights were
outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 30, May 31,
2003 November 29, 2002
(Unaudited) 2002 (Unaudited)
---------------- --------------- -------------
Assets
Current Assets:
Cash and cash
equivalents $ 81,463 $ 73,105 $ 67,378
Accounts and notes
receivable, net 70,151 48,075 80,749
Inventories 76,654 98,213 77,226
Deferred income taxes 20,588 20,588 24,245
Other current assets 5,215 13,613 4,479
-------- -------- --------
Total current assets 254,071 253,594 254,077
Property and equipment, net 64,092 68,291 70,974
Other assets 15,350 12,914 13,939
-------- -------- --------
Total assets $333,513 $334,799 $338,990
======== ======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
May 30, May 31,
2003 November 29, 2002
(Unaudited) 2002 (Unaudited)
--------------- -------------- -------------
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 12,006 $ 31,513 $ 14,326
Income taxes payable 20,196 17,407 16,239
Accrued expenses and other
liabilities 19,936 20,630 25,122
------- -------- ---------
Total current liabilities 52,138 69,550 55,687
Deferred income taxes 531 531 4,858
Pension obligation 11,677 11,677 -
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000 - - -
Shares issued - None
Common stock, $.25 par value
Share authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par
value 17,408 18,043 18,007
Retained earnings 414,471 398,368 397,369
Accumulated other
comprehensive loss (6,770) (7,246) -
Less cost of 17,527,919
shares of common stock
held in treasury
(17,504,140 on November
29, 2002 and 14,911,079
on May 31, 2002) (170,179) (170,361) (151,168)
--------- -------- --------
Total stockholders' equity 269,167 253,041 278,445
-------- -------- --------
Total liabilities and
stockholders' equity $333,513 $334,799 $338,990
======== ======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the six months ended May 30, 2003 and May 31, 2002
(In Thousands Except Per Share Data)
Three Months Ended Six Months Ended
------------------ ----------------
May 30, May 31, May 30, May 31,
2003 2002 2003 2002
------------ ------------ ------------- -----------
Net sales $154,286 $156,480 $306,608 $297,213
Cost of sales 93,308 98,041 187,589 187,008
Selling and
administrative expenses 44,002 41,006 88,378 81,090
--------- --------- --------- ---------
Operating income 16,976 17,433 30,641 29,115
Other income (expense):
Investment income 923 399 l,606 726
Interest expense (102) (233) (172) (536)
Other, net (1) (83) (164) (253)
---------- ---------- ---------- ----------
820 83 1,270 (63)
--------- --------- --------- ----------
Income before income
taxes 17,796 17,516 31,911 29,052
Provision for income
taxes 6,577 5,944 11,871 9,941
--------- --------- --------- ---------
Net income $ 11,219 $ 11,572 $ 20,040 $ 19,111
========= ========= ========= =========
Net income per common
share:
Diluted $ .28 $ .27 $ .50 $ .45
========= ========= ========= ========
Basic $ .29 $ .28 $ .51 $ .46
========= ========= ========= ========
Dividends per common
share $ .05 $ .05 $ .10 $ .10
========= ========= ========= ========
Average common shares
used in per share
computations:
Diluted 39,895 42,566 39,866 42,376
========= ========= ========= ========
Basic 39,362 42,024 39,394 41,965
========= ========= ========= ========
Theaccompanying notes are an integral part of the
condensed consolidated financial statements.
4
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended May 30, 2003 and May 31, 2002
(Dollars in Thousands)
2003 2002
-------------- -----------
Cash provided from (used for):
Operations:
Net income $20,040 $19,111
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 7,622 7,543
Sales of trading securities - 250
Gain related to long-term investments (1,071) -
Loss on disposals of property and equipment 69 606
Increase in other long-term assets (2,436) (1,653)
Changes in:
Accounts and notes receivable (22,076) (36,010)
Inventories 21,559 35,255
Other current assets 8,398 9,801
Other current liabilities (16,838) (12,894)
------- -------
Net cash provided from operations 15,267 22,009
------- -------
Investments:
Additions to property and equipment (3,492) (6,742)
Proceeds from long-term investments 1,071 -
------- -------
Net cash used for investments (2,421) (6,742)
------- -------
Financing:
Short-term borrowings - (26,000)
Proceeds from sale of stock under stock plans 1,146 1,561
Cash dividends paid (3,943) (4,190)
Repurchase of common stock (1,691) (419)
------- -------
Net cash used for financing (4,488) (29,048)
------- -------
Net increase (decrease) in cash and cash
equivalents 8,358 (13,781)
Cash and cash equivalents at beginning of the
period 73,105 81,159
------- -------
Cash and cash equivalents at end of the period $81,463 $67,378
======= =======
Theaccompanying notes are an integral part of the
condensed consolidated financial statements.
5
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The financial information included in this Form 10-Q of The Stride Rite
Corporation (the "Company") for the periods ended May 30, 2003 and May 31, 2002
is unaudited, however, such information includes all adjustments (including all
normal recurring adjustments) which, in the opinion of management, are
considered necessary for a fair presentation of the consolidated results for
those periods. Certain reclassifications have been made to the prior period
financial statements to conform to the fiscal 2003 presentation. The results of
operations for the periods ended May 30, 2003 and May 31, 2002 are not
necessarily indicative of the results of operations that may be expected for the
complete fiscal year. The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The Company filed audited consolidated
financial statements for the year ended November 29, 2002 on Form 10-K which
included all information and footnotes necessary for such presentation.
The Company's preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
respective periods. The most significant estimates included in these financial
statements include valuation allowances and reserves for accounts receivable,
inventory and income taxes. Actual results could differ from those estimates.
Stock Purchase and Option Plans
During the first quarter of fiscal 2003, the Company adopted the disclosure
provisions of Financial Accounting Standards Board (FASB)- Statement of
Financial Accounting Standard (SFAS) No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure" (SFAS No. 148). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation" to provide two
additional alternative transition methods if a company voluntarily decides to
change its method of accounting for stock-based employee compensation to the
fair-value method. SFAS No. 148 also amends the disclosure requirements of SFAS
No. 123 by requiring that companies make quarterly disclosures regarding the
proforma effects of using the fair-value method of accounting for stock-based
compensation, effective for interim periods beginning after December 15, 2002.
At May 30, 2003, the Company has three stock-based compensation plans,
which are described more fully in Note 10 to the Company's consolidated
financial statements for the fiscal year ended November 29, 2002 as contained in
Form 10-K. The Company accounts for these plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. The following table provides the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, to stock-based compensation. 6
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
-------------------------- ------------------------
May 30, May 31, May 30, May 31,
2003 2002 2003 2002
------------ ------------ ----------- ------------
Net income, as reported $11,219 $11,572 $20,040 $19,111
Add: Stock based employee
compensation expense
included in net income,
net of related tax effects
- 25 9 51
Deduct: Total stock based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects
(616) (417) (931) (760)
--------- --------- --------- ---------
Pro forma net income $10,603 $11,180 $19,118 $18,402
======== ========= ========= ========
Earnings per share:
Basic - as reported $ .29 $. 28 $ .51 $ .46
======== ======== ======== ========
Basic - pro forma $ .27 $ .27 $ .49 $ .44
======== ======== ======== ========
Diluted - as reported $. 28 $ .27 $ .50 $ .45
======== ======== ======== ========
Diluted - pro forma $ .27 $ .26 $ .48 $ .43
======== ======== ======== ========
7
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Earnings Per Share
Basic earnings per common share excludes dilution and is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per common
share reflects the potential dilution that could occur if options to issue
common stock were exercised.
The following is a reconciliation of the number of shares used in the basic
and diluted earnings per share computations (amounts in thousands except for per
share data):
------------------- ------------------
Three Months Six Months
Ended Ended
------------------- ------------------
May 30, May 31, May 30, May 31,
2003 2002 2003 2002
--------- -------- -------- --------
Net income $11,219 $11,572 $20,040 $19,111
Calculation of shares:
Weighted average common shares
outstanding (basic) 39,362 42,024 39,394 41,965
Dilutive effect of stock options 533 542 472 411
------- ------- ------- -------
Weighted average common shares
outstanding (diluted) 39,895 42,566 39,866 42,376
======= ======= ======= =======
Net income per common share
(basic) $ .29 $ .28 $ .51 $ .46
===== ===== ===== =====
Net income per common share (diluted)
$ .28 $ .27 $ .50 $ .45
===== ===== ===== =====
The following options were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares:
Second Quarter First Six Months
------------------- ------------------
2003 2002 2003 2002
-------- --------- -------- --------
Options to purchase shares of common
stock (in thousands) 521 959 550 1,466
8
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Comprehensive Income
Comprehensive income is as follows:
Three Months Six Months
Ended Ended
-------------------- ------------------
May 30, May 31, May 31, May 30,
2003 2002 2003 2002
--------- --------- -------- --------
(in thousands)
Net income $11,219 $11,572 $20,040 $19,111
Other comprehensive income:
Foreign currency translation
adjustments 326 - 476 -
--------- --------- -------- ---------
Total comprehensive income $11,545 $11,572 $20,516 $19,111
========= ========= ======== =========
Accumulated other comprehensive loss is as follows:
May 30, November 29, May 31,
2003 2002 2002
-------------- ----------------- -----------
(In thousands)
Foreign currency translation
adjustments $ (49) $ (525) -
Minimum pension liability
adjustments, net of taxes (6,721) (6,721) -
-------- ------- --------
Accumulated other
comprehensive loss $(6,770) $(7,246) -
======== ======== ========
9
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Intangible Assets and Goodwill
The Company adopted Statement of Financial Accounting Standard No 142,
"Goodwill and Other Intangible Assets", (SFAS 142) effective November 30, 2002.
In accordance with SFAS 142, goodwill and intangible assets with indefinite
useful lives will no longer be amortized, but instead will be measured for
impairment at least annually, or when events indicate that impairment exists.
Intangible assets that are determined to have finite useful lives will continue
to be amortized over their useful lives.
As required by SFAS 142, the Company performed impairment tests on goodwill
and other indefinitely lived intangible assets, which consisted only of certain
trademarks, as of November 30, 2002. As a result of this testing, the Company
does not believe that the carrying value of goodwill or any indefinitely lived
intangible assets have been impaired.
The following table summarizes the Company's intangible assets and goodwill
balances:
Intangible assets not subject to amortization
------------------------------------------------
Trademark
Goodwill Rights Total
- -------------------------------------------------------------------------------
May 30, 2003 (In Thousands)
Gross carrying amount $3,073 $2,980 $6,053
Accumulated amortization $(2,165) $(1,290) $(3,455)
November 29, 2002
Gross carrying amount $3,048 $2,980 $6,028
Accumulated amortization $(2,165) $(1,290) $(3,455)
May 31, 2002
Gross carrying amount $2,748 $2,980 $5,728
Accumulated amortization $(2,101) $(1,221) $(3,322)
Amortization expense, which is included in selling and administrative
expenses, was $0 and $67,000 for the three-month periods and $0 and $135,000 for
the six-month periods ended May 30, 2003 and May 31, 2002, respectively. The
estimated amortization expense for intangible assets for future periods is zero,
because the Company does not have any intangible assets with finite useful
lives.
The results for the three-month and six-month periods ended May 31, 2002 do
not reflect the provisions of SFAS 142. Net income for the three-month and
six-month periods was $11,572 and $19,111, respectively. Had the Company adopted
SFAS 142 on December 1, 2001, for the three-month and six-month periods ended
May 31, 2002, we would have recorded net income of $11,616 and $19,200 as a
result of not recording amortization. Basic and diluted earnings per share would
not have changed.
10
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Guarantees
The Company adopted Financial Accounting Standards Board Interpretation No.
45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 (FIN
45) during the first quarter of fiscal 2003. This interpretation clarifies the
requirements of FASB Statement No. 5, "Accounting for Contingencies" relating to
the guarantor's accounting for, and disclosure of, the issuance of certain types
of guarantees. The provisions for initial recognition and measurement are
effective on a prospective basis for guarantees that are issued or modified
after December 31, 2002.
Prior to December 31, 2002, the Company entered into a guarantee of the
lease payment of a storefront located in New York, New York for a third party.
The storefront is used to support the marketing of one of the Company's product
lines. The guarantee, which runs for five years could require the Company to
make annual payments in the amount of $50,000. The Company has not recorded any
liability related to this guarantee because we do not believe that it is
probable that any payments will be required.
Note 6 - Subsequent Event
During June 2003 the Company and Tommy Hilfiger Licensing, Inc. agreed on
terms and conditions for the extension of the footwear licensing agreement for
the United States through March 2007. Terms and conditions are substantially
similar to the prior agreement. The licensing agreement was due to expire in
March 2004.
11
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
The following discusses The Stride Rite Corporation's results of operations
and liquidity and capital resources. The discussion, including known trends and
uncertainties identified by management, should be read in conjunction with the
condensed consolidated financial statements and related notes.
This Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934. We caution investors that any forward-looking
statements presented in this report and presented elsewhere by management from
time to time are based on management's beliefs and assumptions made by, and
information currently available to, management. When used, the words
"anticipate", "believe", "expect", "intend", "may", "might", "plan", "estimate",
"project", "should", "will be", "will result" and similar expressions which do
not relate solely to historical matters are intended to identify forward-looking
statements. Such statements are subject to risks, uncertainties and assumptions
and are not guarantees of future performance, which may be affected by known and
unknown risks, trends, uncertainties and factors that are beyond our control.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. We expressly disclaim any
responsibility to update forward-looking statements. Accordingly, past results
and trends should not be used by investors to anticipate future results or
trends.
Risks and uncertainties that may affect future performance are detailed
from time to time in reports filed by the Company with the SEC, including Forms
10-Q and 10-K, and include, among others, the following: international, national
and local general economic and market conditions; the size and growth of the
overall footwear and general retail market; intense competition among designers,
marketers, distributors and sellers of footwear; demographic changes; changes in
consumer fashion trends that may shift to footwear styling not currently
included in our product lines; popularity of particular designs and categories
of products; seasonal and geographic demand for the Company's products;
difficulties in anticipating or forecasting changes in consumer preferences;
delays in the opening of new stores; difficulties in implementing, operating and
maintaining the Company's complex information systems and controls, including,
without limitation, the systems related to the Company's retail stores, systems
related to demand and supply planning, and inventory control; interruptions in
data and communications systems; fluctuations and difficulty in forecasting
operating results; the ability of the Company to sustain, manage or forecast its
growth and inventories; the size, timing and mix of purchases of the Company's
products; the underperformance or delay of new products; the possible failure to
retain the Tommy Hilfiger footwear license; the ability to secure and protect
trademarks, patents and other intellectual property; performance and reliability
of products; customer service; adverse publicity; the loss of significant
suppliers or customers, such as department stores and specialty retailers, the
12
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
consolidation or restructuring of such customers, including large
department stores, which may result in unexpected store closings; dependence on
China manufacturing; the ability to secure raw materials; delays and increased
costs of freight and transportation to meet delivery deadlines; the impact on
product development or manufacturing as a result of SARS (Severe Acute
Respiratory Syndrome) or other such health risks; changes in business strategy
or development plans; general risks associated with doing business outside the
United States, including, without limitation, import duties, tariffs, quotas and
political and economic instability; acts of war or terrorism; changes in
government regulations; liability and other claims asserted against the Company;
the ability to attract and retain qualified personnel; and other factors
referenced or incorporated by reference in this report and other reports.
The risks included here are not exhaustive. Other sections of this report
may include additional factors which could adversely affect the Company's
business and financial performance. Moreover, the Company operates in a very
competitive and rapidly changing environment. New risk factors emerge from time
to time and it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on the Company's business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
The Company discussed a number of significant trends and specific factors
affecting the footwear industry in general and our business in particular in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Item 7 of our Annual Report on Form 10-K for the fiscal year 2002.
Those trends and factors continue to be relevant to the Company's performance
and financial condition.
Critical Accounting Estimates
- -----------------------------
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make judgments, assumptions and estimates that affect the
amounts reported. Please refer to the discussion of critical accounting
estimates in the Company's Annual Report on Form 10--K for the fiscal year ended
November 29, 2002 for additional information.
Contingencies
- -------------
The sale of Tommy Hilfiger branded footwear is a significant portion of our
business. The Tommy Hilfiger footwear sales are contingent on our licensing
agreement with Tommy Hilfiger Licensing, Inc. During June 2003 the Company and
Tommy Hilfiger Licensing, Inc. agreed on terms and conditions for the extension
of the footwear licensing agreement for the United States through March 2007.
Terms and conditions are substantially similar to the prior agreement. The
licensing agreement was due to expire in March 2004.
13
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table summarizes the Company's performance for the second
quarter and first six months of fiscal 2003 as compared to the results for the
same periods in fiscal 2002:
Increase (Decrease) Percent vs. 2002 results:
- ---------------------------------------------
Second Quarter Six Months
-------------- ----------
Net sales (1.4%) 3.2%
Gross profit 4.3% 8.0%
Selling and administrative expenses 7.3% 9.0%
Operating income (2.6%) 5.2%
Income before income taxes 1.6% 9.8%
Net income (3.1%) 4.9%
Operating Ratios as a Percent to Net Sales:
- -------------------------------------------
Second Quarter Six Months
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Gross profit 39.5% 37.3% 38.8% 37.1%
Selling and administrative expenses 28.5% 26.2% 28.8% 27.3%
Operating income 11.0% 11.1% 10.0% 9.8%
Income before income taxes 11.5% 11.2% 10.4% 9.8%
Net income 7.3% 7.4% 6.5% 6.4%
Second Quarter 2003 Compared to the Second Quarter 2002
- -------------------------------------------------------
Net Sales
- ---------
During the second quarter of fiscal 2003, consolidated net sales decreased
$2.2 million to $154.3 million, or 1.4% below the sales level realized in the
second quarter of fiscal 2002. Wholesale net revenues decreased 7.0% for the
second quarter of 2003, while overall retail sales were up 14.6% when compared
to the same period in the prior year. Unit shipments of current line merchandise
for the wholesale brands during the second quarter were 5.2% lower than the
comparable period in fiscal 2002. The Company's average first quality selling
price was lower for the second quarter of 2003, decreasing 6.7% from the same
period last year.
First quality wholesale gross sales for the second quarter decreased by
$12.2 million, or 11.2% lower than the wholesale gross sales level achieved in
the same quarter in the prior year. As compared to last year's second quarter,
the Company increased its sale of closeout items, while sales of special shoes
for key accounts decreased. Retail store sales were up significantly, $5.1
million versus the sales levels recorded in the second quarter of fiscal 2002.
14
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales of the Stride Rite Children's Group during the second quarter of
fiscal 2003 were $58.6 million, 4.0% higher than the same period in the prior
fiscal year. Sales to independent retailers decreased 12.3% during the second
quarter as compared to the same quarter last year. This decrease was principally
attributable to overall retailer weakness, with the greatest declines in
licensed dealers and small independent accounts. The Tommy Hilfiger children's
products, now developed, marketed and sold by the Stride Rite Children's Group,
performed significantly better than the Stride Rite brand products. Sales levels
for the Children's Group's retail stores were up significantly, increasing
14.4%, when comparing the second quarters of fiscal years 2003 and 2002. Sales
at comparable Children's Group retail stores (stores open for 52 weeks in each
fiscal year) increased 9.0% for the second quarter of fiscal 2003. The
comparable stores category contained a greater proportion of recently added
stores in the second quarter of fiscal 2003 than the prior year. At the end of
the second quarter of fiscal 2003, the Stride Rite Children's Group operated 230
stores. This is an increase of 22 stores, or 11% from the end of the same period
in the prior year. Current plans call for the opening of fewer than ten stores
during the 2003 fiscal year. The rate of new store openings has been slowed this
year in an effort to concentrate our efforts on optimizing business performance
in our new and existing stores.
Sales of the Keds division were $50.2 million during the second quarter of
fiscal 2003, a decrease of 9.7% as compared to the results of the same period in
the prior year. Despite good retailer sell-in of the Keds repositioned product
line during the first quarter of fiscal 2003, the corresponding sell-through of
the product line in the second quarter, was not strong enough to generate
reorder levels consistent with the prior year. This lack of retail sell through,
combined with the generally poor sales trend in canvas products, were the
principal drivers of the Keds quarter to quarter sales decrease.
Sales of Tommy Hilfiger men's and women's footwear products during the
second quarter of the fiscal year were $24.1 million, a decrease of 6.3% from
the second quarter of 2002. The Pro-Keds product line sales are reported as part
of Tommy Hilfiger Footwear's results, although their sales are not currently
significant.
Sales of Sperry Top-Sider products during the second quarter of fiscal 2003
were $18.5 million, an increase of 7.7% from the same quarter in the prior year.
Strong performance boat shoe shipments were the principal reason for the sales
increase.
Sales of the Stride Rite International division during the second quarter
of fiscal 2003 were $5.6 million, a decrease of 4.2% versus last year's second
quarter. Shortfalls in sales to South America were the primary reason for the
year-to-year sales decrease.
15
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gross Profit
- ------------
During the second quarter of fiscal 2003, the Company's gross profit of
$61.0 million increased $2.5 million or 4.3% above the amount recorded during
fiscal year 2002's second quarter. The lower level of first quality wholesale
sales reduced gross profit by $2.2 million. Also, the lower gross profit
performance on closeout sales reduced gross profit by $1.1 million and the
effect of LIFO and inventory capitalization reduced gross profit by an
additional $1.1 million. These declines were offset by an additional $3.5
million of gross profit associated with the higher level of retail sales and
$2.3 million due to lower obsolescence costs primarily due to the better
performance of closeout activity in the Keds division. The gross profit rate for
fiscal 2003's second quarter improved 220 basis points to 39.5% as compared to
the 37.3% rate achieved in the prior year's second quarter. Higher initial gross
profit margins and lower inventory obsolescence, in addition to the relative
growth in company owned retail store sales, which have a higher gross profit
percentage, were the principal reasons for the higher gross profit rate in the
second quarter of 2003 as compared to last year.
Operating Costs
- ---------------
During the second quarter of fiscal 2003, selling and administrative
expenses were $44.0 million, an increase of $3.0 million or 7.3% as compared to
the second quarter of fiscal 2002. As a percent of sales, operating costs were
28.5 % in the second quarter of fiscal 2003 versus 26.2% in the second quarter
of fiscal 2002. The most significant factor causing the increase in operating
costs was the $2.1 million increase in year to year retail store expenses
related to the large number of stores opened during the second half of the 2002
fiscal year and the carryover of these added costs into fiscal 2003. This is a
continuation of the trend seen in the first quarter of fiscal 2003. Pension
expense in the second quarter increased $0.7 million versus the prior year's
second quarter. Also adding to the second quarter year-to-year increase was $1.5
million of higher advertising costs in fiscal 2003, with most of the increase
occurring in the Keds division.
Other Income (Expense)
- ----------------------
Other income (expense) increased pre-tax income by $0.8 million in the
second quarter of fiscal 2003. This compares favorably to the increase in other
income (expense) of $0.1 million in the second quarter of fiscal 2002.
Investment income of $0.9 million increased $0.5 million in the second quarter
of fiscal 2003 as compared to the same quarter last year. The sale of our
minority stake in a Thailand factory joint venture resulted in a $750,000 gain
in the 2003 second quarter. Higher average investments were not sufficient to
offset lower average interest rates. Interest expense decreased $0.1 million in
the second quarter of fiscal 2003 as compared to the prior year, principally due
to the lack of short-term borrowings during the second quarter of 2003.
16
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Income Taxes
- ------------
The provision for income taxes increased $0.6 million in the second quarter
of fiscal 2003 as compared to last year's second quarter. The increase was
mainly due to the effect of a higher effective income tax rate on higher pre-tax
income. In the second quarter of fiscal 2003, the effective income tax rate was
37.0%, as compared to 33.9% in 2002. Our effective tax rate in fiscal 2003 is
expected to increase for the year as the prior year's lower tax rate was
affected by reductions in previously established tax accruals, which were no
longer needed. We are not anticipating any further reductions in our current tax
rate related to prior year tax accruals.
Net Income
- ----------
Net income for the second quarter of fiscal 2003 was $11.2 million, a
decrease of $0.4 million, or 3.1% as compared to the same period in the prior
fiscal year. The increase in gross profit was not sufficient to offset both
higher selling and administrative expenses and a higher provision for income
taxes. The Company's return on net sales of 7.3% in the second quarter of fiscal
2003 was slightly below the 7.4% return on net sales for the prior year's second
quarter.
First Six Months 2003 Compared to the First Six Months 2002:
- -----------------------------------------------------------
Net Sales
- ---------
Net sales for the first six months of fiscal 2003 increased $9.4 million or
3.2% above the net sales level for the same period of fiscal 2002. Revenues
related to the Company's wholesale brands increased $2.5 million or 1.0%.
Overall retail sales increased 8.4% when compared to the same period in the
prior year. Unit shipments of current line merchandise for the wholesale brands
during the first six months were 1.8% higher than during last year's first six
months. The Company's average first quality selling price was lower during the
first six months of fiscal 2003, decreasing by 4.3% from the same period last
year.
First quality wholesale gross sales for the first six months decreased by
$5.4 million, or 2.5% less than the wholesale gross sales level for the prior
year's first six months. Both closeout sales and special shoes for key accounts
increased as compared to last year. The increases in closeout sales and special
shoes for key accounts were sufficient to offset the decrease in first quality
sales and when combined with fewer returns, were the primary reasons for the
increase in wholesale net sales. Strong retail sales comparisons to last year,
increasing $5.2 million or 8.4% for the first six months, also added to the
increase in net sales.
17
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales of the Stride Rite Children's Group during the first half of fiscal
2003 were $112.8 million, 3.1% higher than the same period in the prior fiscal
year. Sales to independent retailers decreased 3.2% in the first six months of
fiscal 2003 compared to last year. Increased sales of both Munchkin products and
Tommy Hilfiger children's shoes were not sufficient to offset the decrease in
Stride Rite brand footwear. Sales levels of the Children's Group's retail stores
were up 8.3% for the first half of fiscal 2003 as compared to the prior fiscal
year. Sales at comparable Children's Group retail stores (stores open for 52
weeks in each fiscal year) increased 2.4% for the first two quarters of fiscal
2003. Strong comparable performances at many of our recently added stores were a
major reason for this increase.
Sales of the Keds division were $105.8 million for the first six months of
fiscal 2003. This is a decrease of 1.9% versus the same period last year. This
decrease was primarily the result of weak second quarter retailer sell-through,
which offset the sales gains from the first quarter of fiscal 2003. The first
half net sales performance was also affected by weaker sales of Grasshopper
products. Offsetting these decreases were closeout sales and special shoes for
key accounts which were up significantly versus last year's first six months.
Sales of Tommy Hilfiger men's and women's footwear products were $48.9
million for the first half of fiscal 2003, an increase of 11.6% versus last
year's first half. This increase was driven by their very strong first quarter
sales performance. Increased closeout sales, along with increased special shoes
for key accounts, were the major reasons for the six-month sales increase.
Continued expansion of retail channels has also contributed to the first half
sales improvement versus last year.
Sales of Sperry Top-Sider products during the first six months of fiscal
2003 were $32.9 million, an increase of 10.8% as compared to the first six
months of fiscal 2002. Strong sales of performance products across both genders
and the continued increase in sales of women's products were the primary reasons
for the sales increases for the first half versus last year.
Sales of the Stride Rite International division during the first six months
of fiscal 2003 were $11.8 million, a decrease of 15.1% versus the first half of
fiscal 2002. Continued weakness in the global economy, particularly in South
America, negatively impacted their six-month results.
Gross Profit
- ------------
During the first half of fiscal 2003, the Company's gross profit of $119.0
million increased by $8.8 million or 8.0% as compared to the amount recorded
during the first half of fiscal 2002. The gross profit rate for the first six
months of fiscal 2003 improved 170 basis points to 38.8% as compared to the
37.1% rate achieved in the prior year's first six months. An increase
18
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
in overall wholesale sales for the first six months with a higher gross
profit percentage added $1.9 million to the six-month gross profit comparisons.
Also, a reduction of obsolescence costs of $3.5 million due to better closeout
performance in Keds and Tommy Hilfiger, combined with $3.4 million of additional
gross margin from retail store sales were the principle reasons for the increase
in year-to-year gross profit comparisons. The growing importance of the retail
store business continues to positively impact gross profit comparisons.
Operating Costs
- ---------------
During the first six months of fiscal 2003, selling and administrative
expenses were $88.4 million, an increase of $7.3 million or 9.0% as compared to
the same period in the prior year. As a percent of sales, operating costs were
28.8% for the first half of 2003 and 27.3% for the first half of fiscal 2002.
Increased advertising costs of $2.4 million and higher retail store expenses of
$2.5 million were the primary reasons for the increase from 2003 to 2002. A $1.4
million increase in pension expense also contributed to the higher costs in
2003.
Other Income (Expense)
- ----------------------
Other income (expense) increased pre-tax income by $1.3 million for the
first six months of fiscal 2003. This compares favorably to the decrease in
other income (expense) of $0.1 million for the same period of fiscal 2002.
Investment income of $1.6 million increased $0.9 million in the second fiscal
quarter of 2003 as compared to the same quarter last year. The $750,000 gain on
the sale of our interest in the Thailand factory joint venture, as well as a
gain on a prior year investment, were the major reasons for the increase versus
prior year. Higher average investments were not able to offset lower average
interest rates. Interest expense decreased $0.4 million in the second quarter of
fiscal 2003 as compared to the prior year, principally due to the fact that
there were no short-term borrowings during the second quarter of 2003.
Income Taxes
- ------------
The provision for income taxes increased $1.9 million in the first half of
fiscal 2003 as compared to last year's first half. The increase in the provision
for income taxes was due to the combination of a higher effective income tax
rate being applied to an increase in income before income taxes. The effective
income tax rate for the first half of fiscal 2003 was 37.2%, as compared to the
34.2% rate for the first half of fiscal 2002. The effective income tax rate in
fiscal 2003 is expected to increase versus last year because the prior year's
lower tax rate was affected by reductions in previously established tax
accruals, which were no longer needed. We do not anticipate any further
reductions in our current tax rate related to prior year tax accruals.
19
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Income
- ----------
Net income for the first six months of fiscal 2003 was $20.0 million, an
increase of $0.9 million, or 4.9% as compared to the same period in the prior
fiscal year. For the first half of the 2003 fiscal year, the increase in gross
profit resulting from the greater sales and higher gross profit percentage was
somewhat offset by both increased selling and administrative expenses and a
larger provision for income taxes. The Company's return on net sales of 6.5% for
the first half of fiscal 2003 was slightly better than the 6.4% return on net
sales for the prior year's first half.
Liquidity and Capital Resources
- -------------------------------
At the end of the first half of fiscal 2003, our balance sheet had a
current ratio (total current assets divided by total current liabilities) of 4.9
to 1 with no debt. Our cash and cash equivalents totaled $81.5 million at May
30, 2003, an increase of $14.1 million from the total cash and cash equivalents
of $67.4 million at the end of the first half of 2002. The Company utilizes its
$75 million revolving credit facility to fund seasonal working capital needs. No
borrowings under this line of credit were outstanding as of May 30, 2003 or May
31, 2002.
During the first half of fiscal 2003, $15.3 million of cash was provided
from operations. This positive cash flow amount was below the $22.0 million of
cash provided from operations in the prior year's first half. At May 30, 2003,
accounts receivable and inventory levels totaled $146.8 million, a decrease of
$11.2 million or 7% below the $158.0 million level at May 31, 2002. Accounts
receivable at the end of the first half of 2003 decreased $10.6 million or 13%
compared to the prior year. This compares favorably to the 7% decrease in
wholesale sales for the second quarter of fiscal 2003. Day's sales outstanding,
which is a measure of the length of the collection period, were 40 days at the
end of the first half, a reduction of 11 days from the same point in the prior
year. Inventories were slightly lower at the end of the second quarter of 2003,
down $0.6 million or less than one percent from the 2002 level.
Additions to property and equipment totaled $3.5 million in the first six
months of fiscal 2003. This was $3.2 million below the level of capital
expenditures in the same period in the prior year. The decrease in capital
purchases is primarily related to the lower level of spending caused by the
reduction in new store openings during the 2003 fiscal year. The Company expects
that all capital purchases during fiscal 2003 will be provided for with internal
funds. If business conditions change and do not allow for internal funding, we
will re-evaluate our plans for capital spending. We currently anticipate that
contributions to the Company's defined benefit pension plan in fiscal 2003 will
total $4 million.
20
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the first half of fiscal 2003 we returned $5.6 million to
shareholders through share repurchases and cash dividends. We spent $1.7 million
to repurchase 216,000 common shares under our share repurchase program. As of
May 30, 2003, we have 4.0 million shares remaining on our share repurchase
authorization. We expect to continue to purchase shares opportunistically
through the remainder of the fiscal year.
At the end of the first half of the 2003 fiscal year there were no
borrowings outstanding under the Company's $75 million revolving credit
facility. This is consistent with the level of borrowings at the end of the
first half of fiscal 2002. During the first six months of fiscal 2003, we have
not utilized any of the available credit under the revolving credit line.
Borrowings were not required during the first half primarily because we entered
the year with no outstanding debt and because we have been successful in
managing both our inventory levels and accounts receivable balances. As of May
30, 2003, letters of credit totaling $48.4 million were outstanding for the
purchase of inventories. All letters of credit generally expire within one year.
21
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to the Exchange Act Rule
13a-15. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic filings with the Securities and Exchange
Commission.
(b) Changes in internal controls.
None.
22
PART II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on April 10,
2003. The three directors nominated by management were elected by the vote set
forth below:
Votes
------------------------
Name of Director For Withheld
---------------- ------------------------
David M. Chamberlain 35,722,196 783,402
Shira D. Goodman 35,855,681 649,917
Myles J. Slosberg 25,952,359 10,553,239
The Company's other directors, whose term of office continues after the 2003
stockholders' meeting, are as follows:
Christine M. Cournoyer
Donald R. Gant
Frank R. Mori
Bruce Van Saun
The Company's shareholders also ratified the Company's selection of
PricewaterhouseCoopers LLP as auditors of the Company for the 2004 fiscal year
by the vote set forth below:
Votes
---------------------------------------------------
For Against Abstentions
--- ------- -----------
35,443,426 1,014,422 47,750
The shareholders voted in favor of a proposal requesting that the directors
consider and act upon to approve an amendment to the 1998 Non-Employee Director
Stock Ownership Plan, by the vote set forth below:
Votes
---------------------------------------------------
For Against Abstentions
--- ------- -----------
32,539,456 2,225,483 1,740,659
The shareholders voted against a proposal regarding global human rights
standards, by the vote set forth below:
Votes
---------------------------------------------------
Broker
For Against Abstentions Non-Vote
--- ------- ----------- --------
2,275,114 25,172,346 2,131,774 6,926,364
23
PART II - OTHER INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are contained in this report:
None
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the most recent
quarterly period.
24
THE STRIDE RITE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: July 10, 2003 By: /s/ Frank A. Caruso
--------------------------
Frank A. Caruso
Chief Financial Officer
25
I, David M. Chamberlain, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ending
May 30, 2003 of The Stride Rite Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 10, 2003 /s/ David M. Chamberlain
------------- --------------------------------------
David M. Chamberlain, Chairman & CEO
26
I, Frank A. Caruso, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ending
May 30, 2003 of The Stride Rite Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 10, 2003 /s/ Frank A. Caruso
------------- ---------------------------------------
Frank A. Caruso,
Chief Financial Officer
27